Lumber Prices are Crashing! What Does That Mean for Home Depot Stock???

The prices of lumber have been more volatile than usual following the outbreak of COVID-19. That has consequences for the largest home improvement retailer in the U.S. Home Depot has thrived recently as folks took on a blistering rate of new projects. This video will highlight the potential impact on Home Depot stock from crashing lumber prices. #homedepotstock #HDstock #homeimprovement #lumberprices #housingprices

So lumber prices are crashing and i’m going to talk about what that could mean for home depot stock if you recall at the pandemics onset businesses thought that revenue and sales was going to collapse and so businesses of all kinds started to you know prepare for the worst and that was not different for lumber mills which initially pulled back their production

Pulled back their plans thinking that you know oh we’re going to go into a pandemic the demand for lumber is going to fall and so we shouldn’t be producing as much lumber as we were normally doing however the opposite happened right if you remember the when we were locked down one of the most popular activities during lockdowns was home improvement and sales for

Home depot and lowe’s and the entire home improvement industry surged and so with the support of course of stimulus checks and all of different kinds of government stimulus around the world and we we see here and so what i have here is the price of lumber per 1000 board feet going back 25 years right so going all the way back to 1998 if you look here what happened

At the pandemics onset so let’s go to the shorter chart here for the five year and we see here at 2020 there was initially at the pandemics onset the price crashed from about 950 from right here february it crashed all the way down to 300 uh per thousand square feet and then it surged all the way up to 900 and then it crashed a little bit and then it surged all

The way up to more than almost 17.50 per square foot so more than it’s ever been it surged all the way that high if we look back at the last 25 years again um we see that it had never been this expensive it at any point in history in the last 25 years way more than it’s ever been right so that was unsustainable uh there was there was many investors speculating

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That the price would eventually crash and that’s what’s happening now a massive crash followed by a rebound because there was more stimulus checks in 2021 but now it’s crashed again and now it’s back down to about 486 dollars uh per 1000 board feet and it’s unlikely to rebound again up to those higher levels because it doesn’t look like governments are going to

Have any more stimulus coming out they realize that all of that economic stimulus payments has has helped and create this unfathomable unfathomable bout of inflation worldwide and so they’re going to be more restrained in stimulating the economy because they don’t want to make inflation worse and so inflate lumber prices are crashing so what could that mean for

Home depot stock right because we buy a lot of lumber is one of the main things that people go to home depot for to buy and in home depot’s most recent quarterly statement uh the evp of merchandising jeff kinnaird talked about some different categories and talked about electrical decor and storage kitchen bath outdoor tools gardens indoors and lumber were positive

In the quarter but they were below the company’s average so lumber sales was below the company average and going on they note that deflation deflation right everybody’s talking about inflation but here home depot is talking about deflation because many of the core commodities it’s not just lumber that’s crashing many other core commodities are falling from their

Highs but deflation from core commodities negatively impacted their average ticket growth by 14 basis points during the second quarter driven primarily driven primarily by lower lumber prices so lower lumber prices are causing what they call the average ticket which is what the average customer order is at home depot it’s falling because there’s having to spend

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Less as the price is falling so let’s go look at that here we have home depot’s most recent quarterly statement and they note here the average ticket over here ninety dollars and two cents so the average purchase is 90 at home depot that was still up from 82.48 so still up nine percent from the year before but that would have been much higher if it wasn’t for

Deflation from these core commodities and similar for the six months ended in july 31st down 10 percent however they did note here if you look at customer transactions so this is the amount of times customers come in that was down three percent year over year in the most recent quarter and five and a half percent for the most recent six months so they are seeing

Customers coming to home depot less often now with lumber prices crashing as far as they did continuously so the the crash got worse since july 31 so what home depot investors could hope for is the fact that as the prices fell more customers took on projects that they delayed because of the higher prices so you may have had a project that required a lot of lumber

That was going to cost you a certain amount for the project that you decided you know what i’ll put this on hold for now because the prices are too high but now that prices have crashed many households might now say oh you know what prices are lower now so let’s go ahead and and take on that project so that’s what investors can hope for and to make that case even

Stronger home depot’s policy in terms of price fluctuations is typically when prices of commodities come down home depot is quick to lower their prices for customers so when prices fall home depot quickly lowers its prices at the stores to match with the price and fall in commodity prices and on the opposite side when prices rise home depot is slow to increase

Prices on consumers so on both sides when prices are increasing and decreasing home depot takes a more customer friendly approach to pricing and so when they’re falling they’re going to be quick to lower prices for customers if they stick to their philosophy which i don’t see any reason why they won’t do in this case and so that could be good news for customers

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And if it’s good news for customers it could be good news for investors in home depot stock so this is what it could mean home depot’s uh lump crashing lumber prices could help home depot’s sales because it could increase the amount of customers that come in and take on projects that they delayed that they put on hold but it could also decrease the average ticket

Because now if a customer was planning on buying a basket of goods at home depot the price of that basket of goods could be lower because they’ve lowered the prices on lumber so two effects it could have this is what we’re going to be paying attention to this is what i’m going to be paying attention to when home depot next announces its quarterly earnings results

And i will be sure to have a review for you all an update for you all on my channel so please be sure to subscribe if you want to see the effects of the crashing lumber prices on home depot’s business and subsequently on its stock all right so that’s all i’ve got thank you for watching and i’ll see you next time i want to thank the motley fool for sponsoring this

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Lumber Prices are Crashing! What Does That Mean for Home Depot Stock??? By Parkev Tatevosian